Construction firm must repay insurer despite bankruptcy
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A construction company is obligated to repay Great American Insurance Co. more than $600,000 for three bonded projects it failed to complete despite the company's bankruptcy, says an appellate court.
Cincinnati-based Great American had provided payment and performance bond insurance to Glasgow, Ky.-based Poynter Construction as part of its insurance requirement to bid for public contracts, according to Friday's ruling by the 6th U.S. Circuit Court of Appeals in Cincinnati in Dewayne Anthony Poynter v. Great American Insurance Co.
Poynter Construction, however, failed to complete three bonded projects, and Great American was forced to pay for the projects' completion, incurring a $600,210 net loss, according to the ruling.
Dewayne Poynter, the company's sole proprietor, sought relief under Chapter 7 of the bankruptcy code, seeking to discharge his debts to the insurer. Great American argued the debts were not dischargeable because Mr. Poynter failed to hold payment of bonded contract funds in trust in accordance with the terms of the two parties' agreement of indemnity
A unanimous three-judge panel agreed, in a decision that upholds a ruling by the district court in Louisville, Ky. Mr. Poynter committed “defalcation,” which occurs through the misappropriation or failure to properly account for trust funds, when he did not segregate the funds of bonded construction contracts from funds received through other construction projects, said the ruling.
“Poynter's co-mingling of bond contract funds with other contract funds is a misappropriation of trust funds,” said the ruling. “Therefore we determine that Poynter breached his fiduciary duty by engaging in a defalcation while acting in a fiduciary capacity.”
